Archive for the ‘Wal-Mart’ Category

Friday Roundup

Friday, May 30th, 2014

Attend the FCPA Institute,  Wal-Mart fires back, up north, the race is on, deserving part 2, quotable, and a revised roundup.  It’s all here in the Friday roundup.

FCPA Institute

Join lawyers and other in-house counsel and compliance professionals already registered for the inaugural FCPA Institute July 16-17th in Milwaukee, Wisconsin.  The FCPA Institute is a unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills.  FCPA Institute participants will have their knowledge assessed and upon successful completion of a written assessment tool can earn a certificate of completion. In this way, successful completion of the FCPA Institute represents a value-added credential for professional development.

To register see here.

Wal-Mart Fires Back

This recent post highlighted various Wal-Mart shareholder proposals that touched upon FCPA issues.  As noted in the post, Institutional Shareholder Services (“ISS”) criticized Wal-Mart’s board for “fail[ing] to make progress in providing meaningful information to shareholders about any specific findings on the FCPA-related investigations and whether executives will be held accountable for related compliance failures.”

Wal-Mart has fired back in this proxy filing which states, in pertinent part:

The Audit Committee and the Company are following the appropriate protocol for an independent, thorough investigation

As the Company has previously reported, the Audit Committee of the Board is conducting an independent internal investigation into, among other things, alleged violations of the FCPA and alleged misconduct in connection with foreign subsidiaries. Also, as previously reported to shareholders, the Company voluntarily disclosed the Audit Committee’s investigative activity on these matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission, both of which are conducting their own external investigations of these matters.

We believe that ISS’s recommendation that shareholders vote against the election of Mr. Walton and Mr. Duke because the Board has not disclosed “specific findings” regarding the FCPA-related investigations is at odds with the appropriate conduct of such internal and external investigations. We further believe that ISS’s request for disclosure of “specific findings” with respect to these ongoing investigations is contrary to the best interests of the Company and our shareholders because such a disclosure: (1) could interfere with, or distract from, the ongoing investigations; (2) is impractical, given that no final conclusions or findings have been made; and (3) could adversely impact the Company’s position in any current or future legal proceedings that may relate to these matters.”

As hinted at in the previous post, I agree with Wal-Mart’s position.

Up North

This previous post highlighted Canada’s first individual conviction for a bribery offense under the Corruption of Foreign Public Officials Act (“CFPOA”) including the specific facts in the action against Nazir Karigar.  Karigar was recently sentenced to three years in prison.

As noted here from Baker & McKenzie’s Canadian Fraud Law:

“Superior Court Justice Hackland ruled that Karigar “had a leading role in a conspiracy to bribe Air India officials in what was undoubtedly a sophisticated scheme to win a tender for a Canadian based company.” The Court issue[d] the following warning: “Any person who proposes to enter into a sophisticated scheme to bribe foreign public officials to promote the commercial or other interests of a Canadian business abroad must appreciate that they will face a significant sentence of incarceration in a federal penitentiary”.

In his reasons for sentence Justice Hackland stated that “The idea that bribery is simply a cost of doing business in many countries, and should be treated as such by Canadian firms competing for business in those countries, must be disavowed. The need for sentences reflecting principles of general deterrence is clear.”

As noted in this Osler alert:

“The [sentencing] decision noted a number of aggravating factors. First, the bribery conspiracy was sophisticated, carefully planned, and would have involved the payment of millions of dollars in bribes. Second, Mr. Karigar orchestrated a fake bid to create the illusion of competition and used confidential insider information to prepare the bid. Third, Mr. Karigar behaved with “a complete sense of entitlement.” Finally, Mr. Karigar personally conceived and orchestrated the scheme.

Several mitigating factors were also noted. The bribery scheme was unsuccessful. In addition, Mr. Karigar helped to shorten the trial by cooperating in the prosecution. Indeed, it was his exposure of the bribery scheme after a falling out with his co-conspirators, and his inability to secure an immunity agreement, that led to his prosecution. Mr. Karigar’s prior clean record, his 67 years of age and his failing health were also considered mitigating factors.”

For more, see here from Blakes.

The Race is On

This previous post regarding GSK’s scrutiny in China noted that one of the more interesting aspects of the scrutiny will be the enforcement competition between Chinese, U.K., and U.S. authorities.    The U.K. has unique double jeopardy provisions and former U.K.  Serious Fraud Office Director Richard Alderman has stated (see here):

“Our double jeopardy law looks at the facts in issue in the other jurisdiction and not the precise offence. Our law does not allow someone to be prosecuted here in relation to a set of facts if that person has been in jeopardy of a conviction in relation to those facts in another jurisdiction.”

The race is on as GSK recently disclosed:

“GSK has … been informed by the UK’s Serious Fraud Office (SFO) that it has opened a formal criminal investigation into the Group’s commercial practices. GSK is committed to operating its business to the highest ethical standards and will continue to cooperate fully with the SFO.”

In this release, the SFO states:

“The Director of the SFO has opened a criminal investigation into the commercial practices of GlaxoSmithKline plc and its subsidiaries. Whistleblowers are valuable sources of information to the SFO in its cases. We welcome approaches from anyone with inside information on all our cases including this one …”.

For additional reporting, see here

Deserving Part 2

Earlier this week, the African Development Bank (“AfDB”) announced:

“[T]he conclusion of a Negotiated Resolution Agreement with Snamprogetti Netherlands B.V. following the company’s acceptance of the charge of corrupt practices by affiliated companies in an AfDB-financed project. As part of the Negotiated Resolution Agreement, the Bank’s Integrity and Anti-Corruption Department levied a financial penalty of US $5.7 million against the company.”

The project at issue was once again the Bonny Island, Nigeria project and the recent AfDB action follows a March action (see here for the prior post) in which the AfDB assessed $17 million in financial penalties against other Bonny Island participants – Kellogg Brown & Root, Technip, and JGC Corp.

As highlighted in this previous post, in July 2010 Snamprogetti and related entities resolved a $365 million DOJ/SEC enforcement action involving Bonny Island conduct.

My comment is the same as it was in connection with the March AfDB action against other Bonny Island participants.

Pardon me for interrupting this feel good moment (i.e. a corporation paying money to a development bank), but why is the AfDB deserving of any money from the companies?  As noted here, AfDB’s role in the Bonny Island project was relatively minor as numerous banks provided financing in connection with the project.  Moreover, as noted here, the AfDB “invested in the oil and gas sector through a USD 100 million loan to NLNG [Nigeria LNG Limited] to finance the expansion of a gas liquefaction plant located on Bonny Island.”

Why is the bank that loaned money to NLNG deserving of anything?  Is there any evidence to suggest that the $100 million given to NLNG was not used for its “intended purpose” of building the Bonny Island project?

Quotable

In this recent Wall Street Journal Risk & Compliance Journal Q&A, Kathleen Hamann (a recent departure from the DOJ’s FCPA Unit) states:

“Tell me what companies should take from your time at the Justice Department now that you’re advising them on how to fulfill the requirements of an FCPA compliance program.

The first thing I would say is that companies shouldn’t just be thinking about the FCPA. There’s been such a proliferation of transnational bribery laws and domestic bribery laws that you may not [just] have an FCPA issue. You also have to think about the U.K. Bribery Act, you may have to think about the Corruption of Foreign Public Officials Act in Canada, [among others.]

A lot of the laws in other countries have complete defenses to liability for having a good compliance program in place. Having a good compliance program ahead of time not only helps prevent misconduct, but it also puts the company in a better position if something does go wrong. There are points all the way where a good compliance program and strong remediation can either stop an investigation, or really mitigate the consequences of the investigation, both in terms of the penalty and in terms of the reputational risk the company will take.

[....]

What do you tell companies about self-reporting allegations to the authorities?

I think it’s a much more complicated question than even five years ago. It used to be that you disclose to the Justice Department and the SEC; you deal with them and it’s over. But now: How many different jurisdictions do you need to disclose to? What if it’s a country with no mechanism for voluntary disclosure, or no mechanism to reward voluntary disclosure?

I also think there’s a perception that your only two choices are to voluntarily disclose, lay down and cooperate, and give the department everything it asks for — or fight from day one. Those aren’t the only two options. There are stages of cooperation where you can get full credit, without accepting everything that is said by the government as gospel.

You want to minimize disruption to your business operations , which can be one of the best incentives for voluntary disclosure.  The U.S. generally doesn’t do things like seize servers, but others do. It’s incredibly disruptive to business operations to have foreign law enforcement take your in-country server. There has to be a very clearheaded assessment of what jurisdictions are involved, how complicated voluntary disclosure will be and what the genuine benefits and risks are of the disclosure are.”

Revised Roundup

Last week’s roundup collected commentary regarding the 11th Circuit’s recent “foreign official” ruling.  The post has been revised to include several additional law firm alerts, etc. and now includes over 25 links.

*****

A good weekend to all.

 

Wal-Mart Shareholder Proposals Touch Upon FCPA Issues

Wednesday, May 28th, 2014

Wal-Mart’s annual shareholders meeting is June 6th at Bud Walton Arena on the campus of the University of Arkansas.  It sounds exciting, but like most corporate shareholder meetings, most of the action is in advance of the annual meeting as shareholders seek to have proposals included in the company’s proxy statement and management responds to the proposals.

Wal-Mart’s proxy statement includes three shareholder proposals each of which touch upon issues related to the company’s Foreign Corrupt Practices Act scrutiny.

The first shareholder proposal asks that the Board of Directors “adopt a policy that, whenever possible, the board chairman should be a director who has not previously served as an executive officer of the  Company and who is “independent” of management.”  The supporting statement for this proposal states in pertinent part:

“We believe the Board of Directors ability to provide independent oversight of management is compromised when the chairman of the board is not independent.  We believe that an independent Chairman who sets agendas, priorities and procedures for the board can enhance its oversight and accountability of management, and help ensure the objective functioning of an effective board. We view the alternative of having a lead outside director, even one with a robust set of duties, as adequate only in exceptional circumstances fully disclosed by the board. Investigations into bribery and corruption at Wal-Mart’s subsidiaries in Mexico, China, Brazil, and India, along with a recent National Labor Relations Board decision to authorize a nationwide complaint against the company for violations of federal labor law, highlight the need for enhanced oversight of Wal-Mart’s corporate culture and behavior. A board led by an independent chairman is best positioned to drive such change.”

Wal-Mart’s board of directors recommends that shareholders vote against the proposal.

The second shareholder proposal “urge[s] the board of directors to adopt a policy that Walmart will disclose annually whether Walmart, in the previous fiscal year, recouped any incentive or stock compensation from any senior executive or caused a senior executive to forfeit an outstanding incentive or stock compensation award, in each case as a result of a determination that the senior executive breached a company policy or engaged in conduct inimical to the interests of or detrimental to Walmart.”

The supporting statement for this proposal states in pertinent part:

“As of Q3 2014, Walmart has incurred $381 million in costs associated with investigations into alleged Foreign Corrupt Practices Act violations in Mexico, China, India and Brazil.  Walmart also recently pled guilty to federal and state criminal and civil  charges of illegally dumping hazardous materials, leading  to over $110 million in fines. Recoupment disclosure would allow shareholders to determine whether Walmart recouped compensation from any current or former senior executive for similar misconduct.”

Wal-Mart’s board of directors recommends that shareholders vote against the proposal and the proxy statement notes in pertinent part as follows.

“In sum, the Board believes that this proposal is unnecessary because existing SEC disclosure rules already require sufficient  disclosures regarding Walmart’s comprehensive recoupment policies and practices and because the report requested by the proposal would not include the full range of sanctions used by Walmart to address Associate misconduct.”

The third shareholder proposal requests that the board of directors authorize the preparation of an annual reporting on lobbying. The supporting statement for this proposal states in pertinent part:

“As shareholders, we encourage transparency and accountability in our company’s use of corporate funds to influence legislation  and regulation. Walmart is reportedly a member of the Chamber of Commerce, which is characterized as “by far the most muscular business lobby group in Washington”, spending more than $1 billion on lobbying since 1998. Walmart has experienced negative press because of its involvement with the Chamber that actively lobbies against the Foreign Corrupt Practices Act (“Wal-Mart Took Part in Lobbying Campaign to Amend Anti-Bribery Law,”  Washington Post, April 12, 2012). Walmart does not disclose its memberships in, or payments to, trade associations, or the portions of such amounts used for lobbying. Transparent reporting would reveal whether company assets are being used for objectives contrary to Walmart’s long-term interests.”

Wal-Mart’s board of directors recommends that shareholders vote against the proposal and the proxy statement notes in pertinent part as follows.

“The Board recommends that shareholders vote against this proposal. Walmart already discloses information about its lobbying activities and procedures (including the oversight role played by the Board), as required by existing law, regulations, and Walmart policies. The additional disclosures of proprietary and confidential information required by this proposal are unnecessary and would risk putting Walmart at a competitive disadvantage.”

Institutional investors often follow guidance of shareholder advisory services such as Institutional Shareholder Services (“ISS”) in voting on shareholder proposals.  As reported here and here, ISS is encouraging shareholders to vote for the proposals and an ISS report states:

“The board failed to make progress in providing meaningful information to shareholders about any specific findings on the FCPA-related investigations and whether executives will be held accountable for related compliance failures.”

“Several years into the investigations and more than a decade after the actions at the heart of the allegations began to occur, shareholders still have little insight into the risks associated with the alleged compliance failures, and little reason for confidence that senior executives will be held accountable for any failures which are found to have occurred on their watch.”

To state the obvious (or perhaps not so obvious as the case may be), Wal-Mart’s FCPA scrutiny is still ongoing.  Yes, it has been approximately 2.5 years since Wal-Mart first disclosed its FCPA scrutiny in a December 2011 SEC filing and yes it has been approximately two years since the New York Times article that elevated Wal-Mart’s FCPA scrutiny.  However, it is typical (warranted is often a separate issue) for corporate FCPA scrutiny to last between 2-4 years and in some cases more from the first instance of disclosure to an enforcement action if any.

Friday Roundup

Friday, May 16th, 2014

Root causes, a mere $855,000 per working day, “bad in law,” scrutiny alert, and for the reading stack.  It’s all here in the Friday roundup.

Root Causes

Understanding the root causes of FCPA enforcement actions can help inform pro-active FCPA compliance policies and procedures.  Moreover, recognizing the fallacy of “good companies don’t bribe” can help set realistic expectations in terms of what FCPA compliance policies and procedures can and can not accomplish.

I will be talking about both topics during a free webinar “Understanding the Root Causes of FCPA Scrutiny and Enforcement” on Thursday, May 22nd at 2 p.m. (EDT).  The webinar is hosted by Hiperos and you can register here.

Wal-Mart’s Pre-Enforcement Action Professional Fees and Expenses

Over the past 1.5 years I have tracked Wal-Mart’s disclosed pre-enforcement action professional fees and expenses.

While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts, settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.

Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

In its 1Q FY2015 earnings conference call yesterday, Wal-Mart disclosed:

“FCPA and compliance-related expenses for the quarter were approximately $53 million. Approximately $34 million of these  expenses represented costs incurred for the ongoing inquiries and  investigations, and approximately $19 million was related to our global  compliance program and organizational enhancements.”

Doing the math, this equates to approximately $855,000 per working day.

While eye-popping, this recent figure suggests that Wal-Mart’s pre-enforcement action professional fees and expenses may have crested as the figures for the past two quarters were approximately $1.1 and $1.3 million per working day.

That pre-enforcement action professional fees and expenses are typically the most expensive aspect of FCPA scrutiny is a fact.  However it must nevertheless be asked – once again – whether FCPA scrutiny has turned into a boondoggle for many involved.

Is Wal-Mart’s conduct for which it is under scrutiny in violation of the FCPA?  Does it even matter?  See my article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure.”

“Bad in Law”

In 2007, the SEC brought this FCPA enforcement action against Dow Chemical.  The enforcement action was based on allegations that Dow’s “fifth-tier foreign subsidiary” in India, DE-Nocil Crop Protection Ltd. (“DE-Nocil”), made “approximately $39,700 in improper payments to an official in India’s Central Insecticides Board to expedite the registration of three DE-Nocil products.”

It is always interesting to see what happens when the “dust settles” (see here for the prior post).

India’s Hindustan Times reports here as follows.

“As the Central Bureau of Investigation (CBI) did not attach evidence with the supplementary chargesheet against De-Nocil Crop Protection (presently Dow Agro Sciences India, a subsidiary of Dow Chemical of the US) and Agro Pack, the CBI special court, Haryana, at Panchkula, has discharged the companies in a case of bribing an Indian official to get their products registered. On December 30, 2011, the CBI had filed the supplementary charge sheet but attached no oral or documentary evidence. On Wednesday (May 7), special judge, CBI, Haryana, Rakesh Yadav ruled that being not supported by evidence, the supplementary chargesheet was “bad in law” and so the court could not take cognizance of it.  The accused companies no longer have to face trial.”

Query whether this end result is a function of the nature and quality of the India investigation or the nature and quality of SEC neither admit nor deny FCPA enforcement actions.

Scrutiny Alert

In case you missed April’s Buzzfeed report on Cisco’s alleged conduct in Russia, Reuters reports as follows.

“In a series of audits in 2009, Cisco Systems Inc. found that much of the business between resellers of its products and a Russian state-owned telecommunications company, Svyazinvest, could not be verified because it was either “misrepresented” or documents were withheld by the resellers, according to an executive summary of the audits reviewed by Reuters. The June 2009 report on the audits, other internal Cisco documents, and interviews with two sources familiar with the situation, raise questions about whether the company knew what was happening to telecom equipment sales going through its resellers in Russia, as well as whether discounts were passed on to customers as planned.”

For the Reading Stack

An interesting Q&A in Mothers Jones with Ken Silverstein regarding his new book “The Secret World of Oil” and the alleged use of so-called “fixers.”  Note:  the FCPA’s anti-bribery provisions prohibit not only direct payments to “foreign officials” to obtain or retain business, but also indirect payments through various third parties.  Thus, the use of “fixers” if true, is not a way to avoid the FCPA.  Moreover, if Silverstein’s allegations are true, the U.S. government is perhaps ignoring (or not caring) about certain alleged conduct.  Further note:  the Q&A is not completely accurate concerning the James Giffen matter.

*****

A good weekend to all.

Wal-Mart Discloses FCPA Compliance Enhancements

Tuesday, April 29th, 2014

Last week Wal-Mart released this Global Compliance Program Report on FY 2014.

The report covered a number of topics including Foreign Corrupt Practices Act and related anti-corruption matters.  As previously disclosed (see here for the prior post), Wal-Mart details that in FY 2014 it has spent in excess of “$109 million on enhancements to its global anti-corruption compliance program and financial controls.”

This significant investment in FCPA compliance should be relevant as a matter of law in the future if a non-executive employee or agent acts contrary to Wal-Mart’s policies and procedures and in violation of the FCPA.  (See my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense“).

Compliance defense detractors say that such a defense will promote “check-a-box compliance” and a “race to the bottom.”

There is nothing “check-a-box” about spending $109 million on FCPA compliance enhancements in one year nor can one credibly argue that if other companies follow Wal-Mart’s enhancements and approach that this is a “race to the bottom.”

The key policy issue is this.

Wal-Mart has engaged in FCPA compliance enhancements in reaction to its high-profile FCPA scrutiny.

Perhaps if there was a compliance defense more companies would be incentivized to engage in compliance enhancements pro-actively.

A compliance defense is thus not a “race to the bottom” it is a “race to the top”  (see here for the prior post) and it is surprising how compliance defense detractors are unable or incapable of grasping this point.

In pertinent part, the Wal-Mart report provides:

“People

“[C]ompliance with the Foreign Corrupt Practices Act (FCPA) and other anti-corruption laws remained a key priority for the company. Walmart hired a number of anti-corruption directors and other anti-corruption staff in both its global headquarters and in its International retail markets during the year. The anti-corruption director for each market reports to a dedicated anti-corruption team in Walmart’s Home Office in Bentonville, Arkansas, which is led by the company’s Global Anti-Corruption Compliance Officer. Collectively, this global team is charged with conducting due diligence, developing and providing anti-corruption training, and overseeing the implementation of the company’s anti-corruption policies and procedures throughout the world.

To ensure that Walmart has an effective anti-corruption compliance program, the company continued to work closely with external anti-corruption compliance experts to continue reviewing, assessing and developing its anti-corruption program during the year. In total in Fiscal 2014, the company has spent in excess of $109 million on enhancements to its global anti-corruption compliance program and financial controls. With the addition of new anti-corruption resources, the company transitioned some anti-corruption compliance work from external consultants to internal staff during Fiscal 2014. This effort is critical to promoting the long-term sustainability and capability of the company’s anti-corruption compliance team.

Second, the company added personnel to the compliance program in its International division both through internal transfers of existing associates and through new hires. Notably, by the end of Fiscal 2014 the company had appointed 10 market-level CCOs in the International division to build and lead the compliance teams in the company’s retail markets. The company also appointed regional CCOs to lead and support the compliance organization within three international regions—LatAm (Argentina, Brazil, Central America, Chile, Mexico), Asia (China, India, Japan), and EMEA (Africa, Canada, U.K.).

[...]

Fifth, in Fiscal 2014 the company began the process of planning for and appointing teams of compliance monitors in all of its International retail markets. These monitors are known as Continuous Improvement Teams because of their mission to regularly review the company’s retail operations and assist the business in maintaining compliance with local laws and policies. In this respect, these international teams are intended to implement best practices that the company has learned in its U.S. retail operations, where similar compliance monitoring teams have functioned for several years.”

[...]

Improved Training

Anti-corruption remains a key focus for compliance training in all markets. Walmart’s anti-corruption training is designed to develop awareness and understanding of the relevant standards of conduct for associates and agents who interact directly or indirectly with government officials on the company’s behalf, among other topics. The training teaches the principles and processes embodied in the company’s Global Anti-Corruption Policy and anti-corruption procedures.

Between December 2011 and January 2014, the company delivered anti-corruption training to more than 100,000 attendees from all levels of the company around the world, including key senior executives and officers who interact directly or indirectly with government officials. This training was conducted in the local language where appropriate. This training was delivered in a number of ways, including via a computer-based learning module to provide consistent and effective anti-corruption training to a broader audience of more than 45,000 associates; in-person procedure and practical scenario training to more than 16,000 associates; in-person general FCPA awareness training in all markets to over 15,000 associates and ad hoc, and risk-based market-specific training to over 28,000 associates. In addition to training its own associates, Walmart has begun to provide training to certain third-party intermediaries and business partners.

The anti-corruption training provided over the last two years provides a solid foundation for an ongoing training regimen. The company will continue providing anti-corruption training in the fiscal year ending January 31, 2015 (“Fiscal 2015”) with the launch of an enhanced global anti-corruption training and communication program. This program was created in Fiscal 2014 to further define risk-based target audiences and design both global and market-specific training and communication plans and requirements.”

[...]

Policies and Processes

“Walmart’s Global Anti-Corruption Policy is part of the foundation for the company’s anti-corruption compliance program. Consistent with anti-corruption laws around the world, Walmart’s Global Anti-Corruption Policy prohibits anyone acting on behalf of the company from offering, giving or receiving anything of value to or from any person, including any government official, in order to improperly influence any act or decision or to otherwise gain an improper benefit for the company.  The Global Anti-Corruption Policy prohibits “facilitating payments” and also clarifies that any associate or third party who violates the policy will be subject to disciplinary measures up to and including termination and, where appropriate, referral of the matter to relevant law enforcement authorities.

In Fiscal 2014, Walmart continued to develop and enhance its market-specific anti-corruption procedures tied to this global policy. Among other issues, these enhancements related to:

  • Assessments of anti-corruption compliance risks;
  • Due diligence on third parties who interact with government officials;
  • Processes and anti-corruption-related contractual provisions for engaging third parties and business partners;
  • Business expenditures (e.g., meals, travel, entertainment, and gifts) involving government officials;
  • Charitable contributions and donations;
  • Acquisition or lease of property from government officials and agencies
  • Government inspections and any associated fines or penalties;
  • Memberships and sponsorships;
  • Training;
  • Record-keeping; and
  • Reporting and investigating allegations of violations relating to integrity.

Over the year, Walmart also continued to evaluate and improve the financial controls in its International retail markets using a team of internal personnel and external consultants. For example, during the year the company installed or amended financial controls for non-merchandise disbursements, employee expense reimbursements, and the sale of gift cards. To increase global and market-level knowledge of the company’s financial controls, the company established corporate-level and in-market communications tools that reported on the progress of the financial control enhancement project. Walmart also improved its in-market and corporate monitoring and reporting, including key control reporting, self-assessments, and certifications, to evaluate the effectiveness of its enhanced financial controls.

As Walmart’s business grows and the risk landscape changes, the company will continue to assess and improve its financial controls and global anti-corruption program.”

[...]

Systems

A.  Third-Party Due Diligence

Third parties who interact with the government (including agents, consultants, and distributors) (collectively “TPIs”) could present potential compliance risks to international businesses. In Fiscal 2014 Walmart implemented a technology solution across all the company’s international retail markets to screen TPIs for anti-corruption and other compliance risks by collecting information on TPIs and comparing it with information from various databases. These databases help to expose some potential relationships between TPIs and foreign governments, identify whether the TPI has been subjected to certain government sanctions, and reveal adverse media stories about the TPI. The company also provided relevant associates in each market’s anti-corruption team with in-person training on the use of the tool.

B. Licenses and Permits

To systematize tracking of the company’s licenses and permits, the company selected a technology tool to manage licenses and permits in all markets and began the initial rollout of this system in four retail markets.

C. Compliance Monitoring

The company also began deploying an electronic tool for capturing monitoring data and tracking remediation of compliance issues identified by the company’s compliance monitors. The initial phase of the tool was installed in all of Walmart’s International retail markets, with a plan to deploy additional functionality in Fiscal 2015.”

Friday Roundup

Friday, April 25th, 2014

FCPA scrutiny equals a raise, Qualcomm declines to cave, scrutiny alerts, industry specific risks, survey says, gaps in the narrative, a pulse on FCPA Inc., quotable and not quotable, and for the reading stack.  It’s all here in the Friday Roundup

FCPA Scrutiny Equals A Raise

There are some things that happen in the FCPA space that cause one to scratch their head.

Such as a company being under FCPA scrutiny paying audit committee members more money because of the time devoted to the FCPA scrutiny.  In its recent proxy statement, Wal-Mart disclosed as follows.

“Since November 2011, the Audit Committee has been conducting an internal investigation into, among other things, alleged violations of the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”) and other alleged crimes or misconduct in connection with foreign subsidiaries, and whether prior allegations of such violations and/or misconduct were appropriately handled by Walmart. The Audit Committee and Walmart have engaged outside counsel from a number of law firms and other advisors who are assisting in the ongoing investigation of these matters. This investigation has resulted in a significant increase in the workload of the Audit Committee members since the commencement of this investigation, and during fiscal 2014, the Audit Committee conducted 13 additional meetings related to the investigation and compliance matters, and Audit Committee members received frequent updates via conference calls and other means of communication with outside counsel and other advisors related to the investigation. As it had done in November 2012 in recognition of the significantly increased commitment of time required of the Audit Committee to conduct this investigation, in November 2013, the CNGC (Compensation, Nomination, and Governance Committee) and the Board approved an additional annual fee in the amount of $75,000 payable to each Audit Committee member other than the Audit Committee Chair for fiscal 2014, and an additional annual fee in the amount of $100,000 payable to the Audit Committee Chair for fiscal 2014. These amounts were prorated for directors who served on the Audit Committee during a portion of fiscal 2014. The CNGC determined the amounts of these additional fees based on (1) the CNGC’s and the Board’s review of the significant additional time and effort that had been required of the Audit Committee members during the previous Board term in connection with these matters, which were in addition to the time spent by the Audit Committee with respect to the Audit Committee’s other duties and its regularly scheduled meetings, and (2) the expectation that the Audit Committee members would continue to expend approximately the same amount of time and effort in discharging their responsibilities as Audit Committee members at least through the remainder of fiscal 2014.”

Qualcomm Declines to Cave

Rare are so-called Wells Notices in the FCPA context for the simple reason that few issuers actually publicly push back against the SEC.  Thus, the below disclosure by Qualcomm earlier this week stands out:

“Securities and Exchange Commission (SEC) Formal Order of Private Investigation and Department of Justice Investigation : On September 8, 2010, the Company was notified by the SEC’s Los Angeles Regional office of a formal order of private investigation. The Company understands that the investigation arose from a “whistleblower’s” allegations made in December 2009 to the audit committee of the Company’s Board of Directors and to the SEC. In 2010, the audit committee completed an internal review of the allegations with the assistance of independent counsel and independent forensic accountants. This internal review into the whistleblower’s allegations and related accounting practices did not identify any errors in the Company’s financial statements. On January 27, 2012, the Company learned that the U.S. Attorney’s Office for the Southern District of California/Department of Justice (collectively, DOJ) had begun an investigation regarding the Company’s compliance with the Foreign Corrupt Practices Act (FCPA). As previously disclosed, the audit committee conducted an internal review of the Company’s compliance with the FCPA and its related policies and procedures with the assistance of independent counsel and independent forensic accountants. The audit committee has completed this comprehensive review, made findings consistent with the Company’s findings described below and suggested enhancements to the Company’s overall FCPA compliance program. In part as a result of the audit committee’s review, the Company has made and continues to make enhancements to its FCPA compliance program, including implementation of the audit committee’s recommendations.

As previously disclosed, the Company discovered, and as a part of its cooperation with these investigations informed the SEC and the DOJ of, instances in which special hiring consideration, gifts or other benefits (collectively, benefits) were provided to several individuals associated with Chinese state-owned companies or agencies. Based on the facts currently known, the Company believes the aggregate monetary value of the benefits in question to be less than $250,000, excluding employment compensation.

On March 13, 2014, the Company received a Wells Notice from the SEC’s Los Angeles Regional Office indicating that the staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company for violations of the anti-bribery, books and records and internal control provisions of the FCPA. The bribery allegations relate to benefits offered or provided to individuals associated with Chinese state-owned companies or agencies. The Wells Notice indicated that the recommendation could involve a civil injunctive action and could seek remedies that include disgorgement of profits, the retention of an independent compliance monitor to review the Company’s FCPA policies and procedures, an injunction, civil monetary penalties and prejudgment interest.

A Wells Notice is not a formal allegation or finding by the SEC of wrongdoing or violation of law. Rather, the purpose of a Wells Notice is to give the recipient an opportunity to make a “Wells submission” setting forth reasons why the proposed enforcement action should not be filed and/or bringing additional facts to the SEC’s attention before any decision is made by the SEC as to whether to commence a proceeding. On April 4, 2014, the Company made a Wells submission to the staff of the Los Angeles Regional Office explaining why the Company believes it has not violated the FCPA and therefore enforcement action is not warranted.

The Company is continuing to cooperate with the SEC and the DOJ, but is unable to predict the outcome of their investigations or any action that the SEC may decide to file.”

Needless to say, this instance of FCPA scrutiny will be interesting to follow.

Scrutiny Alerts

Hiring Probes Expand

Reuters reports here:

“U.S. government agencies that have been probing banks’ hiring of children of powerful Chinese officials are expanding existing investigations in other industries across Asia to include hiring practices …The U.S. Justice Department and the Securities and Exchange Commission have been asking global companies in a range of industries including oil and gas, telecommunications and consumer products for information about their hiring practices to determine if they could amount to bribery …”.

For more on JPMorgan’s FCPA scrutiny which got this started, see here.  For more on so-called industry sweeps, see here.

Delphi Automotive

Delphi Automotive disclosed in it most recent SEC quarterly filing as follows:

“During the first quarter of 2014, Delphi identified certain potentially improper payments, made by certain manufacturing facility employees in China, that may violate certain provisions of the U.S. Foreign Corrupt Practices Act (the “FCPA”). Under the oversight of Delphi’s Audit Committee of the Board of Directors, Delphi has engaged outside counsel to assist in the review of these matters, and to evaluate existing controls and compliance policies and procedures. This review remains ongoing. Violations of the FCPA could result in criminal and/or civil liabilities and other forms of penalties or sanctions. Delphi has voluntarily disclosed these matters to the U.S. Department of Justice and the SEC, and is cooperating fully with these agencies. Although Delphi does not expect the outcome of this review to have a material adverse impact on the Company, there can be no assurance as to the ultimate outcome of these matters at this time.”

United Technologies

United Technologies disclosed in its most recent SEC quarterly filing as follows:

“Non-Employee Sales Representative Investigation

In December 2013 and January 2014, UTC made voluntary disclosures to the United States Department of Justice, the Securities and Exchange Commission Division of Enforcement and the United Kingdom’s Serious Fraud Office to report the status of its internal investigation regarding a non-employee sales representative retained by United Technologies International Operations, Inc. (UTIO) and International Aero Engines (IAE) for the sale of Pratt & Whitney and IAE engines and aftermarket services, respectively, in China. On April 7, 2014, the SEC notified UTC that it is conducting a formal investigation and issued a subpoena to UTC seeking production of documents related to the disclosures. UTC is cooperating fully with the investigation. Because the investigation is at an early stage, we cannot predict its outcome or the consequences thereof at this time. At the outset of the internal investigation, UTIO and IAE suspended all commission payments to the sales representative, and UTIO and IAE have not resumed making any payments. This led to two claims by the sales representative for unpaid commissions: a civil lawsuit filed
against UTIO and UTC and an arbitration claim against IAE. We are contesting the lawsuit and the arbitration claim. We do not believe that the resolution of the lawsuit or the arbitration will have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.”

Industry Specific Risk

The reasons why companies become the subject of FCPA scrutiny are often unique to the industry the company is in.  This is why FCPA compliance is best tailored to a company’s unique risk profile as informed by a risk assessment.

This recent Wall Street Journal Risk & Compliance post from the Dow Jones Global Compliance Symposium is informative in collecting industry insight.

“Technology. Melissa Lea, Chief Global Compliance Officer, SAP AG. Profit margins for distributors are flexible in tech as so much of the cost is related to labor. And that flexibility offers room for partners to try to pad expenses to pay bribes. “Any time you hear about flexibility it opens the door for corruption,” said Ms. Lea, who noted that authorities have recently cracked down on bribery in the technology sector, once thought to be amongst the cleanest industries.

Pharmaceuticals. Rady A. Johnson, Chief Compliance & Risk Officer, Pfizer Inc. Drug companies pay doctors for a variety of consulting services and often invite them to attend events to promote their products. But since it’s these same doctors that prescribe drugs, pharmaceutical companies need to ensure that fancy conferences and payments for services are not cover for bribes. “We can’t do our job without interacting with health care professionals,” Mr. Johnson said. But companies need to ensure those interactions are appropriate and well defined, he said. In 2012, Pfizer agreed to pay more than $60 million to settle investigations into improper payments made to doctors and foreign officials.

Banks. W.C. Turner Herbert, Director of Anti-Corruption, Bank of America Corp.  Lately in the banking sector, corruption concerns have centered on hiring the relatives of foreign officials in exchange for business. In the past few years, U.S. authorities have investigated a number of banks over allegations of the practice, including Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. “Its a new area of enforcement without much precedence,” Mr. Herbert said. While hiring well-connected people shouldn’t, by itself, be a red flag, compliance officers need to ensure the selection is done on “merit and the business objectives” of the job, he said. “What draws red flags is if he’s not qualified,” Mr. Herbert said.

Survey Says

In connection with the above-mentioned Dow Jones Global Compliance Symposium, Dow Jones released this “Anti-Corruption Survey Results 2014.”  The survey was conducted on-line “among compliance professionals worldwide” and 383 responses “were completed among companies with anti-corruption programs.”  It is difficult to assess survey results without knowing the precise questions asked, but the Dow Jones survey does contain some interesting nuggets.

Such as “approximately 30% of companies spend $1 million or more on anti-corruption staff and policies.”

In “Revisiting a Foreign Corrupt Practices Act Compliance Defense,” I suggest that the current FCPA enforcement environment does not adequately recognize a company’s good faith commitment to FCPA compliance and does not provide good corporate citizens a sufficient return on their compliance investments.

Compliance defense opponents (such as the DOJ) like to point out that such a defense will result in “paper compliance” and “check-a-box” exercises.  Such clichés, however, ignore the reality of the situation – this many companies are making substantial investments of time and money in pro-active compliance policies and procedures.

One irony of course is that several former DOJ FCPA enforcement attorneys who have criticized a compliance defense as resulting in “paper compliance” and “check-a-box” exercises now devote a substantial portion of their private practice advising companies on FCPA compliance.

Gaps in the Narrative

You know the narrative.

In 2002, an accounting partnership (Arthur Anderson) was convicted of obstruction of justice for shredding documents related to its audit of Enron.  Even though the Supreme Court ultimately tossed the conviction, Arthur Anderson essentially went out of business.  Because of this, in the minds of some, the DOJ can’t criminally charge business organizations with crimes and thus the DOJ has crafted alternative resolution vehicles such as non-prosecution and deferred prosecution agreements to avoid the perceived collateral consequences of a criminal indictment or conviction.

Never mind that the narrative is based on a false premise.  (See here for the guest post and article by Gabriel Markoff titled “Arthur Anderson and the Myth of the Corporate Death Penalty).

Nevertheless, the narrative persists and is accepted by some as gospel truth.

However, perhaps you have heard that in early April Pacific Gas & Electric Corporation (PG&E – a public company) was criminally charged with multiple violations of the Natural Gas Pipeline Safety Act.

The company’s stock is still trading (in fact it is up since the criminal charges were announced), it is still employing people, and it is still operating its business.

Recognizing the fallacy of the narrative is important for corporate leaders of businesses subject to DOJ scrutiny in the FCPA context or otherwise.  Defenses can be mounted and the DOJ can and should be put to its burden of proof more often.

A Pulse on FCPA Inc.

Law360 highlights “Four Practices Areas Generating Big Billable Hours.”  As to the FCPA the article notes:

“The Foreign Corrupt Practices Act, which mandates certain accounting transparency requirements and gives the U.S. government the power to pursue businesses that bribe foreign officials, is creating long workdays for attorneys throughout the world.  ”If Foreign Corrupt Practices Act were a stock, I wish I would have held it,” said William Devaney, co-chair of  Venable LLP’s FCPA and anti-corruption practice group. “We’ve seen huge growth in the practice area since 2004, and with the government’s current focus on FCPA, it’s safe to say anti-corruption enforcement will be around for a long time.”  After the FCPA was amended in 1998 to include additional anti-bribery provisions, the U.S. government began actively applying the FCPA to not only large companies but also their smaller counterparts.  As a result, Devaney says, a lot of midmarket and smaller companies are now coming into the FCPA compliance fold after acknowledging their obligations under the law, resulting in a surge in demand.
And according to Aaron G. Murphy, a partner with Akin Gump Strauss Hauer & Feld LLP, foreign countries passing legislation similar to the FCPA will create an explosion of fraud investigations that begin abroad but later will involve the U.S. Department of Justice.  Murphy said the FCPA stood as one of the lone anti-corruption laws in the world for 20 years, then in the mid-1990s, numerous foreign governments adopted similar rules to punish local and international corruption. ”No politician has ever been elected on a ‘get softer on corruption’ ticket,” Murphy said. “If anti-corruption laws get modified, they will probably get stronger, not weaker. So we likely won’t see, 20 years from now, attorneys reminiscing about when companies had to deal with corruption laws. This practice area is here to stay.”

That the FCPA practice is here to stay is all the more reason to elevate your FCPA knowledge and practical skills at the FCPA Institute.

The three other practice areas highlighted in the article were:  export controls and trade sanctions; civil false claims act; and patent litigation and patent trolls.

Quotable

The White House recently announced that President Obama named Kirkland & Ellis partner W. Neil Eggleston to be White House Counsel (see here).  FCPA Professor has highlighted in the past (see here and here) certain of Eggleston’s spot-on comments regarding the FCPA or related issues.

In this interview Eggleston stated: “I worry that [NPAs and DPAs] will become a substitute for a prosecutor deciding – this is not an appropriate case to bring – there is no reason to subject this corporation to corporate criminal liability. In the old days, they would have dropped the case. Now, they have the back up of seeking a deferred or non prosecution agreement, when in fact the case should not have been pursued at all. That’s what I’m worried about – an easy out.”

In another interview, Eggleston was asked “what is an important issue or case relevant to your practice area and why” and stated: “We are beginning to see the development of case law in the FCPA area, which I believe is good for the process. Most of these cases have been settled. When that occurs, defendants have little incentive to refuse to agree to novel Department of Justice theories of prosecution or jurisdiction, so long as the penalty is acceptable. The department then cites its prior settlement as precedent when settling later ones. But no court approved the earlier settlement, and the prior settlement should have no precedential value in favor of the DOJ in later settlements. As the DOJ increases its prosecution of individuals, we will see many more trials, which will give rise to courts, not the DOJ, interpreting the statute.”

Not Quotable

DOJ Deputy Attorney General James Cole was a keynote speaker earlier this week at the Dow Jones Global Compliance Symposium.   According to the event agenda, the title was “What the Justice Department Has in Its Sights” and described as follows.

“From foreign bribery to insider trading, the U.S. Department of Justice has been at the forefront of rigorous enforcement that has forced companies to treat compliance seriously. We interview James Cole, deputy attorney general, about where the department is focusing its efforts now.”

I reached out to the DOJ Press Office for a transcript of Mr. Cole’s remarks and was told “we don’t have one.”

It is unfortunate that public officials speak about matters of public interest at private conferences that charge thousands of dollars to attend.

Reading Stack

The FCPA Guidance was sort of interesting to read, but as noted in my article “Grading the FCPA Guidance” it lacks any legal authority or effect.  A hat tip to the Tax Law Prof Blog for highlighting a recent U.S. Tax Court decision finding that IRS Guidance is “not binding precedent” nor “substantial authority” for a tax position.

The New York Times here goes in-depth on Dmitry Firtash, the Ukrainian businessman recently criminally charged in connection with an alleged bribery scheme involving Indian licenses (see here for the prior post).

An informative three-part series (here, here and here) by Tom Fox (FCPA Compliance & Ethics Blog) regarding gifts, travel and entertainment.

Miller & Chevalier’s FCPA Spring 2014 Review is here.